3Cs of start-up economy: community, content and commerce
Strong community and high quality content can improve the economics of commerce, and can create moat for businesses with limited network effect
Winter is here, and economics is staring at commerce
With the onset of funding winter, focus in the start-up and VC (venture capital) community, has shifted from growth at any cost to profitable growth. Good unit economics, high LTV (long term value) customers and low CAC (customer acquisition cost) have again become virtues. Start-ups are cutting down on broad-based advertising and performance marketing. The idea is not to pause growth but, commerce should not lose sight of economics. This is where the 2 Cs - community and content - can make the third C (commerce) more efficient.
A good community always helps
Human behaviour can be explained by psychology. So it would not be a bad idea to use a framework from psychology to understand the importance of community for businesses. Community is the premise for at least four of the five human needs, as classified by Maslow (other than the physiological needs), rest. Businesses can think of community building as a tool to cater to two needs in Maslow’s hierarchy - esteem and self-actualization. Most of us want to be respected, appreciated, envied, and validated. We also want to help, learn, teach and improve. Start-ups should try to build community of their users which can cater to as many of these psychological needs.
Some benefits of having a community strategy:
Customer relationship: a community model ensures that the relationship between the customer and the company is not purely transactional but also emotional
High quality customers: engaged, sticky and repeat users who are less likely to churn and provide cohorts for up-sell and cross-sell. This would increase customer LTV
Lower CAC: community can drive organic traffic through word of mouth - one of the highest ROI (return on investment) channels for customer acquisition
Better user experience: issues can get addressed more efficiently e.g. through user forums
Better defense: it becomes difficult for a competitor to poach customers who are part of an existing community ecosystem
Test market: a community of customers can also provide a reliable test market for newer ideas
There are various other benefits that a community would provide, and start-ups understand these. Many try building it as well. A few, especially in the fitness space such as Cult.fit, have tried to build their core business around community - group exercises. Another example is Multipie (fin-tech), which has community at the core of its business model. Every business from Spotify to Shopify is working on building a community of its users to drive growth, increase engagement, and improve user experience.
Bottom-line: Irrespective, of whether community is central to the business or an element of the business, founders and entrepreneurs should consider having a community strategy to ensure sustainability.
High quality content remains king
In 1996 Bill Gates wrote an essay titled “Content is King”. It holds true, in a more prominent form, for the modern day start-up economy. Content can be of various form - blogs, newsletter, website content, pictures, info-graphics, podcasts, videos, customer reviews and testimonials, memes etc.
Most start-ups know the importance of high quality content but a few work on it in a consistent manner. Recently, content marketing has been adopted but its use case remains limited to influencer-marketing which is generally product focused - spreading awareness about a product. Product focused influencer led content marketing is important but not enough. Content strategy should go beyond spreading awareness about a product. Notwithstanding, a few Indian start-ups have well built-out content strategy e.g. Groww and Zerodha. Groww publishes informative video contents on YouTube, and Zerodha has a dedicated team under Varsity brand which regularly creates quality content. Indian e-pharmacies such as PharmEasy, 1MG and NetMeds have built a library of content but there are questions on the execution front to leverage these to drive business. A Google search of a disease does not list any of these websites’ content in the top 25 recommendations indicating some gap in their content and SEO (search engine optimization) strategy.
Further, there are pure-play content companies (like consumer media companies) which try monetization via affiliate marketing (check links for Amazon’s and Flipkart’s affiliate programmes). These companies create contents such as product review, and provide a link for the purchase of that product (which directs to a website such as Amazon). These affiliates earn a commission based on clicks, leads or sales. This led to emergence of start-ups such as Buzzfeed in the US and 91Mobiles in India. However, scalability is a challenge in this model especially if there is a vertical focus (such as only electronics or fashion). In my opinion, it is a good promoter business and does not fit in the VC model. In order to scale, content company needs build commerce like MensXP (built e-commerce platform on top of its content) did or expand in other areas like Buzzfeed did. Moreover, for D2C (direct to consumer) companies, which want to have closer relationship with customers, affiliates are just another middleman. There is friction if the content and products are offered at two different places resulting in higher drop-off. It also becomes difficult for brands to gain insights into the kind of contents that work and those that do not. These (and various other reasons) have encouraged products/services companies to take their content strategy more seriously.
There are several benefits of having a content strategy:
Customer relationship: high quality content spreads awareness about the company, builds reputation and improves brand recognition
Improves user engagement: user engagement tends to be high if there are regular supplies of original, entertaining and informative contents
Helps leverage social media presence more effectively: good regular content can keep a company’s social media presence active
Better conversion: many people make buying decision after reading blogs, and customer reviews/testimonials. Higher conversion implies lower CAC
Generates links: a good content creates linkable and shareable assets helping generate organic leads
Improves SEO: this is perhaps the most easily attributable benefit. SEO is highly dependent on good content. Further, SEO is considered one of the best sources of organic leads. Per an article by The Ken a key reason behind the success of ClearTax was building strong SEO; ClearTax is rich in content. High organic traffic helps in reducing CAC
Bottomline: contents should be treated as assets. Regular high quality content can help generate organic traffic, increase user engagement and improve conversion. Production of content is not sufficient, it should be well distributed and disseminated. Further, while being engaging, it should also have a “call to action” element for the prospects - should be seen as a tool to influence customer behaviour.
Flywheel of community and content to power commerce
Community and content are synergistic. Fundamentally, the purpose of content is to share information. A community of users interacting and sharing experiences can be a source of quality content. Content generated through user experiences carry high degree of trust. Both community and content can form a feedback loop which companies can use to iterate their offerings, and better engage with customers.
Start-ups are realizing the role community and content can play to drive commerce. This has led to adoption of inorganic route - to have community and content readily available. A few examples from the US and India:
Hubspot acquired The Hustle - a producer of business-tech newsletters and podcasts. The Hustle has 2M subscribers. Hubspot also has its own content across blogs and YouTube; about 7M people read its blogs every month
Stripe acquired Indie Hackers - a knowledge sharing community of entrepreneurs
Mamaearth acquired Momspresso - a women focused parenting content and influencer engagement platform. 95% of the content on Momspresso is user generated
Good Glamm Group has done a number of acquisitions in the space. Recently it acquired MissMalini, PoXo, ScoopWhoop and BabyChakra. It has also acquired a couple of influencer management platforms
Pristyn Care acquired Lybrate - an online content and community of patients and doctors for consultations. Lybrate annually records ~200M conversations between patients and doctors. Pristyn Care can use Lybrate to generate better leads for its core surgery business. It is worth mentioning that Lybrate also does affiliate marketing
Mensa Brands is reported to be in the process to acquire MensXP and iDiva
Even traditional companies are realizing the importance of community and content:
JP Morgan is adding these capabilities. It acquired: i) The Infatuation - a publisher of reviews and recommendations on restaurants to source new credit card customers, and add value to the existing ones which would help increase card uses. The Infatuation has ~2.0M monthly visitors, ii) Frank - a financial planning platform for college students. Frank currently serves 5M+ students across 6K higher educational institutes
ICICI Securities, a subsidiary of ICICI Bank, acquired Multipie (founded in 2020). Multipie has community and content central to its business model. Investors can leverage Multipie’s community to discover investing ideas and get answers on stocks
Bottomline: while there is no one size fits all approach, a business appropriate community and content strategy can play an important role in improving profitability. The outlook of founders and senior management towards the 2Cs needs to change from “good to have” to “must have”. Community and content are not substitutes for a strong product and a quality service but can be potent tools in building a sustainable business.